IAA. Climate

Question 1

what are the challenges faced when doing scenario analysis for climate risks?

Answer 1

• climate scenarios provided by organizations such as IPCC are not specific enough for actuaries to model their risks
• time horizon over which climate related risks development is long
• high uncertainty in impact of transition, legal and reputational climate risk

Question 1

what are the 3 main risks related to climate?

Answer 1

TPL
- Transitional risk
- Physical risk
- Liability

Question 2

What is physical risk?

Answer 2

Physical risk is:
risk induced by climate related phenomenon on ABO (assets, business, operations) and their impacts on a firm’s ability to generate profit

Question 3

what are the main effects of physical risk?

Answer 3

• increased property claims
• may increase or decrease investment values
• assessment of credit risk
• higher worker compensation claims

Question 4

examples of physical risk

Answer 4

• increased floods, cyclones, droughts, wildfire

Question 5

what is transition risk?

Answer 5

Transition risk is the risk to a firm’s business due to the shift towards more sustainable and environmentally friendly operations

Question 6

examples of transition risk

Answer 6

• new technologies such as EV
• increased carbon prices

Question 7

how can insurers mitigate climate risk?

Answer 7

• reprice or refuse policies annually
• recalibrate prices of natural hazards and product design using the latest science

Question 8

what do actuaries need to consider for climate risk?

Answer 8

• leading indicators that leads to climate change
• regulatory and legal changes
• new products, products design and other industry developments

Question 9

modelling CAT considerations
(need to be adjusted to expand beyond replicating historical weather patterns)

Answer 9

U CC DAAS (you email and cc DAAAS to ask for CAT considerations)
- update exposure in model
- capture climate risk in underlying assumptions
- consider non linearity of climate impacts
- develop scenarios to estimate transition risk
- allow for demand surge and business interruption
- analyze different time zones
- segregate effects of climate change by geography

Question 10

short term horizon considerations

Answer 10

used for pricing and valuation, use current climate risk with small increments

Question 11

medium term horizon considerations

Answer 11

投资组合指导portfolio steering, do sensitivity testing with trends in the parameters

Question 12

long term horizon considerations

Answer 12

capital position and rebalancing business, sensitivity testing under different scenarios

Question 13

what is system thinking?

Answer 13

a tool used to take into account the (SEPT
考虑九月 ) social, economic, political and technological environment in which the firm operates when considering how it will be affected by climate risk

Question 14

benefits of system thinking

Answer 14

• assist firm with thinking of interconnectedness of modern economy
• helps derive value for variables needed to estimate impact of climate scenarios

Question 15

what are exploratory scenarios?

Answer 15

探索未来的不同可能
- used to explore a range of alternative plausible futures
- test strategies for climate change

Question 16

what are normative scenarios?

Answer 16

规范的 so everything is plotted already
根据绘制的路径设定未来的结果
- future outcomes set from plotted pathways
- used to assess targets and implementation plans
- reverse stress testing falls in this scenario

Question 17

considerations when using IPCC reports for scenario analysis

Answer 17

• implicit assumptions 隐含假设 that financial markets, healthcare systems, supply chains and communications will function at required level
• inherent assumptions 固有假设 in modelling approach taken which are used to estimate the value of assets and liabilities
• importance of sequencing, correlation and cascading of effects
• path and impacts of climate related risk on critical infrastructure to determine the resilience and cost of impacts
• correlation between assets and liabs
• actions by one firm to address its climate related risk may create risk for another

Question 18

what are scenario storylines?

Answer 18

历史,现在事件和假设的未来联系起来. 通过描述…
scenario storylines link historical and present events with hypothetical futures by describing the causal pathways and drivers, assumptions and affected systems.